Labour Market in an Era of Adjustment: A Study of Thailand

Transcription

1 Labour Market in an Era of Adjustment: A Study of Thailand {IB.(JE^QXl t( ( M -C T it O '. e i. Thailand Development Research Institute Foundation

2 LABOUR MARKET IN AN ERA OF ADJUSTMENT: A STUDY OF THAILAND by Chalongphob Sussangkarn Thailand Development Research Institute May, 1990 INSTITUTE Of DEVELOPMENT STUDIES LIBRARY Paper prepared for the Workshop on "Labour Market in and Era of Adjustment." Warwick University, May HA :> R IDS

3 TABLE OF CONTENTS 1. Introduction 1 2. M acroeconom ic G rowth and External Balance 1 Page 3. Structural Im balance and A djustm ent 4 4. Labour M arkets and Structural Adjustm ents G eneral Em ploym ent Situation Labour M arket Problem s and Structural Adjustm ent A djustm ent Issues for the Future 18 R EFEREN C ES 22

4 1 LABOUR MARKET IN AN ERA OF ADJUSTMENT: A STUDY OF THAILAND 1. INTRODUCTION Over the last years, Thailand has been able to achieve a satisfactory pace of economic development. This has come about in spile of several major shocks in the world economy, and structural changes in world trade and exchange rate systems. Through out this period, adjustm ent problem s associated with short-term macroeconomic management and external resource gap have been relatively mild com pared to the experiences in many other countries. Though the chronic current account deficits and the external debt situation became an im portant focus of policy concerns during the early to mid 1980 s, the on-going boom in m anufactured exports, starting around 1986, has diluted this concern substantially. The country is now being talked about as the leader of the next wave of the Newly Industrialized Countries (N IC s). While over all macroeconomic growth has been good, there are im portant structural adjustment problems in Thailand concerning sectorial and regional balance, and income distribution. Over the last two decades, the disparities between agriculture and non-agriculture, between regions, and between income groups, have been widening quite noticeably. While industrialization is now proceeding very rapidly and the share of agriculture in G D P is only around 16%, m ore than 60% of the labour force is still primarily engaged in agriculture. Most of the dynamic and successful export industries are located in and around the capital city, Bangkok, which is highly developed and is about 20 times larger than the next largest city (Chiang Mai). The key question for the future is how to maintain the pace of economic growth while ensuring a m ore balanced development, with the benefits from development spreading m ore evenly am ong the population. In addition, with current rapid growth of industries and services, the composition of dem and for labor is changing towards the more highly skilled labor. Currently, there are already shortages of scientific and technical manpower at the higher level. In the future, it is expected that the labor m arket for all types of labor with middle to high levels of education will also get tight. This will create another structural imbalance, one related to labor of different skill types. This may have an adverse impact on the competitiveness of Thailand in foreign trade, as well as implications for the strive to achieve a better distribution of income in the future. The nature and functioning of the labour markets are clearly related to the above problems of structural imbalance. Changes in the structure of production lead to changes in the composition of dem and for labour; by sector, by location, by skill types. Lags in adjustment in the labour market, or rigidities, will lead to structural imbalance in the structure of employment, which may reinforce other imbalances. Subsequent sections of the study will describe and analyze in detailed the structural adjustments problem s in Thailand in relation to the structure and functioning of the labour markets. 2. M ACROECONOM IC GROWTH AND EXTERNAL BALANCE Table 1 shows the rates of growth of real G D P from 1960 to Between 1960 and 1980, the average rate of real G D P growth was above 7%, which must be regarded as very satisfactory, breaking down

5 TABLE 1 GROWTH OF REAL GDP AND REAL PER CAPITA GNP ( ) REAL PER CAPITA YEAR REAL GDP AGRIC INDUSTRY SERVICE GNP % 4.8% 11.5% 7.2% % 6.0% 10.4% 9.5% % 3.8% 7.3% 5.6% 2.9% % 4.0% 10.6% 8.2% 5.3% % 4.9% 5.0% 6.3% 3.5% % 0.2% 7.1% 4.6% 2.6% % -2.0% 12.0% 10.1% 6.5% % 8.6% 12.8% 10.7% 9.1% Source: NESDB, National Income of Thailand, various issues. Note: Figures from 1970 are based on the New Series of National Accounts.

6 3 the period from 1960 to 1985 into five year intervals, it can be seen that growth was lowest in the periods in the immediate afterm ath of the two oil shocks; and However, the 5.6% average growth achieved during these periods is very high when compared to the experiences of other countries. The impact of the first oil shock was cushioned by a boom in commodity prices during the same period. This helped to increase farm income, and improved the poverty situation considerably.1 In contrast, after the second oil shock, all the main agricultural commodities of Thailand suffered a declining price trend. W hile Thailand still m aintained a satisfactory rate of growth, the impact on agricultural incomes was very severe, leading to significant increases in poverty incidence. However, after 1986, the economy began a period of very rapid growth. Driven on by fast growth of m anufactured exports (currently averaging 30-40% per annum), as well as tourism, economic growth reached 11% in 1988, was about 10% last year, and is likely to be at the double digit level again this year. As with most LDC s, Thailand has usually experiences trade and current account deficit during the course of its development. In 1975, the ratio of the stock of debt to G D P was insignificant at 2.3%. Since 1975, however, this ratio rose rapidly. The ratio jum ped to 16.1% of G D P in 1980, and to 39.0% of G D P in 1985 (See Figure 1). A fter the second oil shock, as a result of the recession in the world economy and declining agricultural commodity prices, the ratio of debt to G D P increased particularly rapidly, and also from a fairly base. In the early to mid-1980 s, this was an issue of major concern to the government. During the period after the second oil shock, the Thai government, both at its own initiative and also with assistance from the IM F and the W orld Bank, carried out various structural adjustm ent policies in order to control the external imbalance and associated foreign debt problems.2 There were some restructuring of taxes, particularly the progressive reduction and finally elimination of the export tax on rice. A ttem pts were made to control public expenditures, and major policy along this line which had im portant consequences on the employment situation was the ceiling on government employment growth to 2% per annum, starting around This significantly affected the employment prospects of the better educated workers, who are predominantly employed by the public sector. However, the policies that were politically the most difficult to put through were probably the two devaluations, in 1981 and In 1981, the Baht was devalued from about 20.5/dollar to 23/dollar, and in 1984 a further devaluation took the rate to about 27/dollar. In both cases, the government nearly fell. In contrast, there were hardly any political concerns after 1986 when the baht was tied mostly to the US dollar as the dollar depreciated substantially relative to the yen and other major European currencies, which m eant substantial effective depreciation of the baht with respect to average currency of Thailand s trading partners. These devaluations and depreciation of the baht were in fact quite substantial departures from the exchange rate policies that had been followed for a long time. As can be seen in Figure 2, the baht/dollar exchange rate had moved very little in the thirty years between 1950 and W hile the various adjustment policies did not keep the ratio of foreign to G D P from rising, they nevertheless kept the problem from getting out of hand. This left Thailand in a good position to take advantage of changes that occurred in the world economic environment starting around Partly because of the exchange rate adjustments, partly because of the sharp decline in oil prices in 1986, and also partly because of the transition of the current Asian NIC s (South Korea, Taiwan, Hong Kong and Singapore) to m ore skilled and technologically intensive export products, the growth of the Thai economy accelerated significantly after The growth was mainly driven on by sharp increases in manufactured exports, which started to grow at a rate of about 30-40% per annum since These exports are very diverse covering such products as processed food, textiles, shoes, gems and jewellery, artificial flowers, integrated circuits, toys, and steel pipes. Basically, these products are of the low to semi-skilled types, and are the items through which the current N IC s had previous 1. See below. 2. For discussions and details of the various structural adjustment policies that were carried out during this period see Sahasakul, Thongpakde and Kraisoraphong [1989].

7 4 achieved their success. At the same time, however, Thailand still remains a major player in agricultural exports. She is the largest exporter of rice and cassava in the world, and ranks among the top five to ten in exports of rubber, sugarcane, maize and fisheries. The boom in exports led to a downturn in the ratio of debt to GDP, which declined from about 39% in 1986 to only about 32% in 1988 (Figure 1). W hile currently, the external resource gap is starting to widen again in absolute terms, it remains manageable thanks partly to the huge inflow of foreign direct investment into the country. The key macroeconomic issue has shifted m ore to the question of how to manage the extremely rapid industrial and urban growth. 3. STRUCTURAL IMBALANCE AND ADJUSTM ENT Although Thailand has been able to achieve a very satisfactory pace of economic growth over the past two to three decades, and short-run adjustment problems have proved to be relatively minor, there are nevertheless im portant problems concerning sectorial and locational imbalance and income distribution. Disparities betw een sectors of productions, between regions, and between income groups have been widening. The importance of agriculture in GDP has continually been on the decline. In 1960, the share of agriculture in G D P was about 40%. This declined to 31.5% in 1975, and between 1975 and 1986, the share fell by almost half to about 16.7% (see Table 2). With the declining importance of agriculture in GDP, it is not surprising that the share of employment in agriculture has also been declining. However, the decline in the share of employment in agriculture has been at a much slower pace than that for the share of agriculture in value added. While the share of agriculture in G D P nearly halved between 1975 and 1986, the share of employment in agricultural3 only fell from 73% to 67%. This obviously m eant a substantial widening of the ratio of value-added per head between non-agriculture and agriculture. In 1975, the value added per head in non-agriculture was 5.9 times higher than that in agriculture. By 1986, it was 10 times higher. The widening gap between non-agriculture and agriculture was particularly rapid between 1980 and During this period, the prices of most of the major crops were on a downward trend. The export price of 3. This refers to the share of the workforce who have their main occupation in agriculture, and is based on data during the peak agricultural season.

8 5 TABLE 2 GDP AND EMPLOYMENT BY SECTOR YEAR GDP (MILLIONS OF BAHT) 298, ,930 1,098,362 AGRICULTURE 94, , ,037 NON-AGRICULTURE 204, , ,325 SHARE AGRICULTURE 31.48% 25.38% 16.66% NON-AGRICULTURE 68.52% 74.62% 83.34% EMPLOYMENT (MILLIONS) AGRICULTURE NON-AGRICULTURE SHARE AGRICULTURE 72.99% 70.95% 66.75% NON-AGRICULTURE 27.01% 29.05% 33.25% PER CAPITA GDP (BAHT/MONTH) 1, , ,431.7 AGRICULTURE NON-AGRICULTURE 3, , ,599.9 RATIO NON-AG/AG Source: NESDB, National Income of Thailand, and NSO, Labour Force Surveys, various issues. TABLE 3 MEAN PER CAPITA INCOME AGRICULTURAL AND NON-AGRICULTURAL HOUSEHOLDS (BAHT PER MONTH) YEAR AGRIC NON-AGRIC RATIO NON-AG/AG 1975/ , , Source: NSO, Socioeconomic Surveys, 1975/6, 1981 and 1986

9 6 rice declined on average by 7% per annum, that of rubber by 5.1% per annum and that of sugar by 9.1% per annum. The result was that the per capita G D P in agriculture actually declined in absolute term s (Table 2). Because most agricultural households earn a significant part of their income from non-agricultural activities,4 the disparity in per capita income between agricultural and non-agricultural households is not as large as the disparity in per capita GDP. Nevertheless, the difference is about two times, and has been widening along with the trend in per capita GDP. Table 3 shows that in 1975/6, the ratio of per capita income of nonagricultural households to that of agricultural households was 2.1. This increased to 2.7 in Also, during the period from 1981 to 1986, when crop prices were on a downward trend, nominal per capita income of agricultural households fell. The disparity between agriculture and non-agriculture was obviously reflected in the disparity between the urban and rural areas. However, in the case of Thailand, the extrem e primacy of the capital city, Bangkok, leads to big differences between the economic conditions in Bangkok and the rest of the country. W hereas the Bangkok region5 contains 15.6% of the total population in 1985, it accounted for 45.5% of total GDP. 63.7% of the G D P from industry originates from the capital region. For the most dynamic exporting industries such as textiles and garments, the proportions originating from the Bangkok region rise to over 90%. Per capita G D P in Bangkok was m ore than 7 times higher than that for the Northeast (the poorest region), and was about 2.8 times higher than that for the Central region (the second richest region). In fact, taken by itself, the Bangkok region is already a NIC. The sectorial and region disparities are reflected in the distribution of household income. Table 4 shows the shares of incomes received by various quintiles of households, with the top and bottom two deciles also separated out. Between 1975 and 1986, the income share of the richest 20% of households increased from 49.3% to 55.6%, while that of the poorest 20% of households declined from 6.0% to 4.5%. The shares of all quintile below the top quintile continually declined between 1975/6 and In fact, looking at the top two deciles, it can be seen that the second decile only made a slight gain. It was the top decile that increased its share of income substantially. Between 1981 and 1986, apart from the worsening in the distribution of income, absolute poverty also increased. Because most of the population depended for their livelihood on agriculture, the decline in crop prices led to a large increase in the share of population living below the poverty line from 23% in 1981 to 29.5% in 1986 (see Table 5). As can be seen from the Table, this was a reversal of the excellent progress made in poverty alleviation since the late 1960 s. In 1968/9, the percentage of the population living below the poverty line was 39%. This declined to only 23% in 1981, before increasing back rapidly to 29.5% in A fter 1986, agricultural prices picked up substantially. This helped to reduce the poverty. The percentage of the population living below the poverty line declined to 25.2% in This was, however, still higher than the ratio under the poverty line in The income distribution situation since 1986 still shows a slight worsening trend. Although crop prices increased, the boom in m anufactured exports also led to rapid increases in incomes of those in the urban areas, and particularly those in and around Bangkok, because most of the industries are located in such areas. The worsening trend of poverty and income distribution between 1981 and 1986 were counteracted to some extent by the exchange rate policy discussed earlier, and also by the agricultural taxation policy. 4. In 1987, it was estimated that the agricultural households earned about 46% of their income from non-agricultural sources; see Sussangkam, Tinakom and Chongpeerapien [1988], table Including the 5 surrounding provinces.

10 7 TABLE 4 INCOME SHARE BY QUINTILE GROUPS OF POPULATION (PERCENT OF TOTAL) QUINTILE 1975/ st top 10% second 10% nd rd th th second bottom 10% bottom 10% Source: NSO, Socioeconomic Surveys 1975/6, 1981 and 1985/6. TABLE 5 POVERTY INCIDENCE (PERCENT POPULATION BELOW POVERTY LINE) Whole Kingdom 1968/ / Source : Meesook [1979] and Hutaserani and Jitsuchon [1988]. Note : Figures up to 1986 are calculated from various Socioeconomic Surveys conducted by the NSO figure was based on a TDRI simulation using the THAM2 model. Sanitary districts are classified as rural.

11 8 Devaluations in 1981 and 1984 generally led to increases in farm incomes com pared to what they would have been without these devaluations. Although Thailand does have some m arket power in the major export crops such as paddy, econometric estimates generally find the foreign dem and curve to be fairly elastic, and that devaluation would increase domestic farm incomes. Thailand has also had a long history of export taxation on rice.6 This included export tax, rice premium and export quotas on rice exports. It has been estim ated to imply a burden on the rice farm ers verging on 30% of the foreign price of rice in As rice prices fell on the world market, the rate of taxation gradually declined, and in 1986 all taxation on rice exports (explicit and implicit) were removed. This helped to keep domestic farm gate price from falling in line with world prices. Nevertheless, these policies could not reverse the trend of falling farm incomes and worsening inequality. The problems of imbalance, poverty, and income distribution described above are clearly related to adjustments occurring in labour markets in response to structural changes on the production side. The next section will discuss the structure of the labour market in Thailand, and the relationship between the labour m arket and the structural imbalance and disparity issues outlined above. 4. LABOUR MARKETS AND STRUCTURAL ADJUSTMENTS 4.1 G eneral Employment Situation As mentioned above and indicated in Table 2, most of those employed in Thailand have their livelihood in agriculture. Currently, over 65% of all employed individuals have their main occupation in agriculture. Thus, in terms of the employment structure, Thailand is basically an agrarian society. As far as the employment situation is concerned, aggregate indicators do not reveal any serious em ploym ent problems. Open unemployment are generally very low, ranging around 1% of the workforce, although the rate appears to be on the rise (Figure 3), presumably partly due to the gp recession in the first part of the 1980 s. The low open OPEN UNEMPLOYMENT RATES unemployment rates is not too surprising. M ost people in Thailand work as either ownaccount or unpaid family workers, and mainly in agriculture. While the share of the own-account and unpaid family workers in total employment has been gradually falling (Table 6), in 1988 they still account for over 70% of all employed people. Thus, it is easy for most people to work for the family enterprise. Also, as with many other LD C s, there are many informal sector employment PERCENT OPEN UNEMPLOYED 6. There are also smaller taxes on rubber, which is still present today. 7. See Siamwalla and Setboonsamg [1987], Figure 3

12 TABLE 6 EMPLOYMENT BY WORKSTATUS: PUBLIC EMPLOYEES 1,020,528 1,780,834 1,839,900 PRIVATE EMPLOYEES 3,291,002 4,470,462 6,176,700 EMPLOYER 282, , ,500 OWN-ACCOUNT 6,544,122 7,456,259 8,550,600 UNPAID 10,669,761 11,222,386 12,543,300 TOTAL 21,807,837 25,183,527 29,464,000 SHARES PUBLIC EMPLOYEES 4.68% 7.07% 6.24% PRIVATE EMPLOYEES 15.09% 17.75% 20.96% EMPLOYER 1.30% 1.01% 1.20% OWN-ACCOUNT 30.01% 29.61% 29.02% UNPAID 48.93% 44.56% 42.57% TOTAL % % % Source: NSO, Labour Force Surveys, July-September. TABLE 7 PERCENT OF EMPLOYED WORKING LESS THAN 20 HOURS PER WEEK (JULY-SEPTEMBER) NORTH MUNI NON-MUNI NORTHEAST MUNI NON-MUNI SOUTH MUNI NON-MUNI CENTRAL MUNI NON-MUNI BANGKOK WHOLE KINGDOM Source: NSO, Labour Force Surveys, 1977 and 1984.

13 10 opportunities available, where barriers to entry are low, so that most of those who really want to work can find something to do. Underem ploym ent has also been generally low in Thailand. Table 7 shows that in 1977, about 4% of the employed workforce worked less than 20 hours per week. This percentage declined to on 1.3% in There were regional variations, but in no region was there a really serious problem of underem ploym ent. The underemployed are almost equally divided between males and females, and over 80% of the underem ployed are own-account workers or unpaid family workers. In fact, when asked whether they desired m ore work, about 64% of the underemployed stated that they did not want more work Labour M arket Problem s and Structural Adjustm ent There are 3 basic types of adjustment problems concerning the labour market. a. The first is a short-term problem related to the seasonal nature of agricultural production. In the dry season, there is a lack of agricultural activities in nonirrigated parts of the country, and a very high proportion of the labour force becomes seasonally unemployed. b. Problem s concerning lags in labour movement in line with changes in the production structure. This leads to problems concerning sectorial and locational disparities. c. Problem s of mismatching of supply and dem and by educational types. This is mostly relevant to the middle to upper educational levels. A. Seasonal Unemployment As most of those employed are dependent on agriculture, and work in agriculture has a seasonal nature, it is found that seasonal unemployment is a problem that afflicts a great num ber of people. Table 8 shows that between 3-5 millions people are seasonally unemployed each year.9 The area worse afflicted is the Northeast, the poorest region, where over 30% of the workforce are seasonally unemployed. A bout 40% of the seasonally unemployed are own-account workers, who own their own farm, and who may not have real opportunities to find off-farm work during the dry season, particularly if this has to involve seasonal migration. O f the rest, most are unpaid family workers, and consists of the relatively young (14-24 years old), and also a large num ber of females. A study by Bertrand and Squire [1980] suggested that most of the seasonally unemployed are voluntarily unemployed, with the younger workers and females drawn into the labour force to help in the peak season, and they voluntarily withdraw in the dry season. However, m ore recent examinations by Phongpaichit and Baker [1984] and Sussangkarn [1987] contradicted this view. The latter analyzed a special data set on seasonal migration and showed that most of the seasonal unemployed would like to find work in the dry seasons, and this was particularly true of the groups of the younger workers and the females. Many, however, are unable to find jobs, or do not know how to go about looking for seasonal migration jobs. 8. According to the Labour Force Survey, Juiy-September Recently, the numbers of seasonally unemployed have declined to around 3 millions each year.

14 11 TABLE 8 SEASONAL UNEMPLOYMENT NUMBERS AND RATES ( ) LABOUR FORCE SU RVEY ROUND 1 NORTH NORTH-EAST SOUTH CENTRAL SEASONAL UNEMPLOYMENT SEASONAL RATE % % % % % LABOUR FORCE SURVEY 1978 ROLND 1 SEASONAL UNEMPLOYMENT SEASONAL RATE % % , % % % LABOUR FORCE SURVEY 1979 ROUND 1 SEASONAL UNEMPLOYMENT SEASONAL RATE % % % % % LABOUR FORCE SU RVEY 1981 ROUND 1 SEASONAL UNEMPLOYMENT SEASONAL RATE % % % TOTAL LABOUR FORCE SURVEY 1982 ROUND 1 SEASONAL UNEMPLOYMENT SEASONAL RATE % % TOTAL % % % LABOUR FORCE SURVEY 1983 ROUND 1 SEASONAL UNEMPLOYMENT SEASONAL RATE % % TOTAL % % % LABOUR FORCE SU RVEY 1984 ROUND 1 SEASONAL UNEMPLOYMENT SEASONAL RATE 12.79% % TOTAL % % 18.05% LABOUR FORCE SURVEY 1985 ROUND 1 SEASONAL UNEMPLOYMENT , SEASONAL RATE 17.41% % TOTAL 1 2 1, % % 19.14% SOURCE: L a b o u r F o rc e s u r v e y s. NSO.

15 12 TABLE 9 AGRICULTURAL INDICATORS (SELECTED ASIAN COUNTRIES) COUNTRY (a) (b) PERCENT LAB.FORCE IN AGRIC (1980) AGRIC SHARE IN GDP (1982) RATIO (b/a) BANGLADESH BURMA CHINA INDIA INDONESIA KOREA,REP MALAYSIA PAKISTAN PHILIPPINES SRI LANKA THAILAND Source: IBRD World Development Report, various issues. Because of the sizable nature of the seasonal unemployment problem, it is an im portant problem for the rural population. The problem is, however, intrinsically tied to the seasonal nature of agricultural activities. The situation will depend on changes in the cropping pattern in agriculture, as different crops require different amounts of labour at various times of the year. It will also depend on possibilities for further extending irrigation into currently rain-fed areas. B. Labour M ovement and Changing Production Structure As earlier discussed, an important adjustment problem is the lack of balance between the sectorial and location distribution of production and of employment. This has led to growing disparities between agriculture and non-agriculture and between regions in the country. The case of Thailand seems somewhat unusual when compared to other countries. Comparing the ratio of the share of employment in agriculture to the share of agriculture in G D P for a number of countries, Thailand stands out as having one of the highest ratio (Table 9). This ratio indicates the difference between the value added per head in agriculture and nonagriculture, as is a rough indicator of the disparity between agriculture and non-agriculture. Part of the explanation for the very large ratio of the share of employment in agriculture to the share of agriculture in G D P may be because many of those who have their main occupations in agriculture also work

16 13 in non-agricultural occupations through out the year, particularly in the off-season.10 W hile this may be true to some extent, it is unlikely to be the main explanation of the very high ratio in Thailand com pared to other countries. First, those engaged in agriculture in other countries are also likely to be engaged in non-agricultural occupations as well. Second, the availability of non-agricultural opportunities are not abundant everywhere, as evidenced by severe seasonal unemployment problems in many parts of the country. Further, the comparison of incomes of agricultural and non-agricultural households in Table 3 above includes household incomes from all sources, and this shows agricultural households falling behind non-agricultural household in line with widening value added per head between agriculture and non-agriculture. There appears to be two main reasons why there is such a difference between the ratio of employment in agriculture and the share of agriculture in G D P in Thailand. The first is the past ready availability of forest areas which could be converted to arable land. This was the main destination for migrants from the rural areas in response to the population pressure up until about Instead of migrating to the urban areas, rural migrants would go to the forest areas (often illegally), and settled down to cultivate the land, and in effect took ownership. The main migration pattern in the 60 s and 70 s was rural-rural. As a result one found that up until the late 1970 s, the rate of expansion of cultivated area in Thailand was between 3-4% per annum (Figure 4), and was in fact greater than the rate of population growth in the rural areas. The land/m an ratio in agriculture had actually been increasing up until the late 1970 s. A second reason is the very high proportion of farm households who are owner cultivators in Thailand. (Excluding Rubber and Second Rice Crop) In 1981, data from the socioeconomic survey give the proportion as 83.3% of all farm households.11 This is likely to be a factor working against large scale migration into the urban areas. It is likely that the m arket for the sales and purchases of land in the rural areas is thin, and thus owner cultivators who wish to sell their land and migrate to the urban areas may only get rather low prices for their land. This would increase the Year opportunity cost of migration. M igration from self-cultivating Figure 4 households would therefore be limited to a few family members such as sons or daughters, and may be circulatory in nature, rather than a wholesale movement of all the family members. TOTAL CULTIVATED AREAS OF MAJOR CROPS 10. This was already indicated above. 11. NSO, Socioeconomic Survey 1981.

17 14 A factor which would reinforce the above reason is that many of the so called owner cultivator in fact do not have full land titles. The migrants who went into the forest areas to open up new land were actually taking possession of the land illegally. They went into the reserved forest areas, while the authorities did not really try to enforce the law. The result is that about 30% of private land in Thailand have no formal legal documents. This will make it even m ore costly for a farm er to abandon the land and m igrate out off the rural areas.12 U p until about the end of the 1970 s, it was logical that many farm ers migrated to open up new agricultural land. Plenty of land were still available in the forest areas.13 Further, crop prices were high and rising. The rural-rural migration path was probably the best choice for the rural population. First, once they migrated, they end up doing the thing they know how to do well, i.e. agricultural cultivation. Second, the move also appeared to increase their asset, because it seem that they have possession of the land. The problem is that once crop prices started to decline in the early 1980 s, it was difficult for the farmers to move out off agriculture. Those who legally own their land may face large opportunity costs in selling their land and moving to the urban areas, due to the thin land m arket. Those who have no legal title to the land will get even lower prices for their land, and hence face a very high opportunity cost. The high opportunity cost faced by the farmers were they to migrate into the urban areas leads to long lags in the adjustment of the employment GROWTH PER ANNUM OF URBAN POPULATION ( ) structure to the production structure. However, some 6.6 adjustments have been occurring, and the pace of adjustment is likely to be accelerating, given the rapid industrialization that is taking place in Thailand at the present time. The benefits to be had in migrating to the urban areas where there are rapidly growing demand for semi-skilled workers are getting larger and larger. D ata on the rate of growth of the PERIOD urban population show clearly Figure 5 that rural-urban migration has been increasing since Between 1960 and 1980, the growth of the urban population has been rem arkably steady at about 3.5% per annum. Between 1980 and 1985 however, the rate jum ped to 6.6% per annum (Figure 5). This was the time when crop prices were falling, and also when the availability of new land for agricultural expansion becam e very limited. Thus, there are clearly labour m arket responses to changes on the production 12. For an analysis of the impact land titles see Chalamwong and Feder [1988], 13. Subject to non-enforcement by the authorities.

18 15 side. However, the responses could not keep pace with changes that were occurring in the production structure. This led to problems of imbalances and income disparities discussed earlier. The current industrial boom will likely lead to even m ore rapid urban growth. While reason migration data are not very complete,14 it is likely that migration rates into areas in and around Bangkok have accelerated. If Thailand can maintain the pace of growth anywhere resembling the past pattern of growth experiences by the Asian NIC s, population movements out off agriculture and into the urban areas are likely to be the key dem ographic transition over the medium to long term in Thailand. C. D em and Supply Mismatching o f Educated Manpower W hile the over all open unemployment rate in Thailand is very low, generally the rates of educated open unemployment are quite high, particularly at the vocational level. This was an im portant problem around the mid 1980 s, and was related to the cutback in government employment growth to 2% per annum as indicated earlier. Currently, however, due to the economic boom, the problem of educated open unemployment is much less severe, and instead the problem of shortages of engineering and scientific manpower has become important. These problems of mismatching of dem and and supply of educated manpower relates to structural changes on the demand side, the functioning of the labour m arket, and the education system. Table 10 shows that the open unemployment rate of those with primary education or below was about half of a percent in 1984 and At the vocational level, however, the rate was over 10% in both years. A t the other levels, the rates were around 3-4%. U p until the economic boom which started after 1986, the num ber of educated openly unemployed had been increasing rapidly. The two groups with the highest growth of open unemployment were those with university education (averaging 14.3% per annum between 1977 and 1986), and vocational education (averaging 22.7% per annum), which was the group with the most serious open unemployment problem. It had the highest open unemployment rate, and also the fastest growth in the num bers openly unemployed. In 1986, the number of unemployed with vocational education was about equal to the sum of the unemployed with secondary, university, and teacher training combined. There were four basic reasons why the educated open unemployment problem has been getting worse over the first part of the 1980 s. First, the supply of the better educated workforce had been rising rapidly. Since 1980, workers with university and vocational education have been increasing at about 15% per annum. This was much faster than the overall growth in the labour force. Social dem and for education at the higher levels had been growing rapidly. Second, there was a fundamental change in the main source of dem and for the better educated workers. U p until about , the main absorber of the better educated workers was the public sector. Figure 6 shows the importance of the government for the employment of the better educated (based on 1984 data). For those with less than completed primary education (Pratom 4), the proportion in government employment was only about half of a percent. For completed primary education, the proportion was still low at 2.1%. The importance of the public sector increased rapidly for higher levels of education. 22.1% of all workers with secondary education were employed by the government. This increased to 41.4% for vocational education, 56.3% for university education, and 84% for teachers This will have to wait for the 1990 Census. 15. The latter is not very surprising, as the government is the main source of supply o f education.

19 TABLE 10 OPEN UNEMPLOYMENT RATES BY EDUCATION: PRIMARY AND BELOW 0.42% 0.56% 0.38% SECONDARY 3.19% 3.55% 2.47% VOCATIONAL 10.22% 10.86% 5.31% UNIVERSITY 4.19% 4.58% 2.87% TEACHER TRAINING 3.19% 3.96% 1.62% TOTAL 0.97% 1.26% 0.83% Source: NSO, Labour Force Surveys, July-September. SHARE OF GOVERNMENT EMPLOYMENT BY EDUCATION: PERCENT OF GOVERNMENT EMPLOYMENT Figure 6

20 17 From the mid 1970 s to about 1984, government employment growth am ounted to about 10% per annum. This was faster than the growth in the size of the private employees, or the num bers of own-account and unpaid family workers. The high government employment growth created much needed jobs for the rapidly increasing pool of workers with relatively high levels of education. While this did not slow down the growth in educated open unemployment completely, it helped to contain the problem substantially. However, as part of the structural adjustment policies taken in the early part of the 1980 s, in about , there was a dram atic cutback in the growth of government employment to only 2% per annum. As discussed in section 2, the early to mid 80 s was a period when the saving-investment gap and the rapidly rising foreign debt burden were im portant issues for Thailand. As civil service salaries were taking up more and m ore of the budget,16 the government had to control the rise in this expenditure item, and therefore imposed an upper limit on civil service growth to 2% per annum, a limit which is still in existence for most parts of the civil service today. The consequence was that the educated workers could no longer rely on the public sector as the main absorber of the supply. The third reason for rising open educated unemployment is that the education system cannot respond quickly to changing needs in the labour market. The skill mix required by the civil service was very different to that required for private sector employment. Even with the current economic boom, there is an over supply of graduates in the humanities, social and political sciences, while at the same time there is a severe shortage in the m ore technical and scientific disciplines (see below). The education system is mostly public and highly bureaucratic, and it is very difficult to reduce the size of any departm ent even though there are clear needs to reallocate resources am ong disciplines to keep up with changing labour m arket needs. The fourth reason has to do with the structure of the labour market. Previous analyses of the labour m arket points to the existence of labour market segmentation, with wages not fully responsive to dem and and supply (Sussangkarn [1987]). Relative wage data by educational levels (Figure 7) did not reveal any clear falling trend in the relative wage of the vocational and university groups, even though their open unemployment rates had been rising m ost rapidly. Econom etric estimations of a segm ented labour market model revealed high wage differentials betw een the "formal" sector, consisting of the public sector and the large private firms, and the "informal sector", and the better educated find it m ore worthwhile to be unemployed and wait for an opening in the formal sector rather than go and work in the informal sector. RELATIVE WAGE BY EDUCATION: x 200 Ui o (PRIMARY = 100) Figure In 1984, almost 48% o f all government revenues had to be used to the pay salaries of civil servants.

21 18 The above study found that returns to education above the primary level were zero or almost zero in the inform al sector, while there were large returns to education in the formal sector. Thus, the wage differential between the formal and informal sector increased with the level of education. For a m ale nonmigrant private employee in Bangkok age 35 years old, the estimates predicted a small formal-informal wage differential at the primary educational level. This differential rose to over 400% for those with university education. Given the high formal-informal wage differential for the better educated, they find it worthwhile to wait for an opening in the formal sector rather than go and work in the informal sector. O f course, some may go and work in the informal sector. However, many may look down on the work in the informal sector as being of low status. In fact, as the level of education increased the proportion found in formal sector employment also went up quickly. In 1988 it was estimated that for those with primary education and below, only 6.6% worked in the formal sector. The ratio quickly rose to 31.6% and 35.5% for those with lower and upper secondary education. For those with vocational education, it was 63.2%, and the ratio reached 88.4% for those with university education. Further, most of the educated unemployed came from relatively well off families, who could finance their periods of unemployment. Recently, with the economy experiencing double digit growths, the situation in the labour m arket is changing rapidly. As seen in Table 10, by 1988 the open unemployment problem for the better educated had improved tremendously. The open unemployment rate of the vocational group had almost halved from the rate in A different type of problem has emerged. There is now a severe shortage of scientific and technical manpower (especially engineers) at the bachelor degree level and above (see Table 11 for estimates at the bachelor degree level). Wages of these types of workers have increased rapidly. The larger private firms are bidding workers away from the public sector, and the small and medium size private firms. The situation is unlikely to get better for some time, given the continual increase in foreign direct investment from countries such as Japan, H ong Kong, and Taiwan. A t the vocational level, however, the technical manpower situation is still one with general excess supply, although there are shortages in specific industrial fields. Part of the reason is that many of the booming industries appear to rely m ore on semi-skilled workers with general training. A nother reason is the quality of output at the vocational level. There are insufficient coordination between the vocational schools, which are mostly public, and the private companies. The machineries that are used to teach vocational students are mostly outdated, and the schools do not have enough resources to update the equipm ent to keep up with the rapidly changing industrial and technical structures. 5. ADJUSTMENT ISSUES FOR THE FUTURE The policy focus for the future should be to maintain the pace of economic growth while ensuring better sharing of the benefits from growth among the population. In order to reach this goal, several problems concerning human resources and the labour m arket have to be tackled in line with expected changes in the production structure. 1. The expected rapid growth in rural-urban migration has to be anticipated and planned. Alr Bangkok is highly congested, and the necessary infrastructures lag far behind the real needs. Currently, the E astern Seaboard region appears to be developing rapidly. This will help to divert some of the industrial

22 19 TABLE 11 PROJECTED EXCESS SUPPLY OF ENGINEERS BY FIELDS (PERSON) BACHELOR DEGREE El (78) (80) (61) (39) 91 E2 (515) (541) (428) (326) 391 TOTAL E (593) (622) (489) (366) 482 Ml (1,285) (1,400) (1,277) (1,279) (1,277) M TOTAL M (1,262) (1,364) (1,217) (1,195) (1,032) Tl (88) (156) ,386 T2 (225) (245) (227) (218) (185) T3 (346) (430) (411) (429) (526) TOTAL T (659) (831) (507) (282) 674 Source: TDRI/NESDB (1989). Note: Meanings of the Codes E. Electronics Technology El E2 M. Material Technology Ml M2 T. Related Technology Tl T2 T3 - Computer science, including computer engineering. - Electrical engineering, including electrical, electronic and communications engineering. - Mechanical engineering. - Metallurgy, including material science and mining engineering. - Other engineering, including civil engineering, sanitary engineering, survey engineering, agriculture and irrigation engineering, and other engineering disciplines not covered under E, M, T2 or T 3. - Chemical engineering. - Industrial engineering.

23 20 GROSS ENROLLMENT RATIOS SELECTED ASIAN COUNTRIES SECONDARY HIGHER PERCENT Figure 8 expansion and population movement away from the surrounding areas of Bangkok.17 The urban centers in the Eastern Seaboard region needs careful management and planning, however. O ne does not want to repeat the chaos and congestion in Bangkok at the Eastern Seaboard area. Already, the social infrastructures (schools, hospitals, etc.) are lagging the population movement into the E astern Seaboard region. 2. W hereas Thailand has a ready supply of relatively cheap labour available, and this will rem a for sometime, most of these workers have just primary education. In Thailand, m ore than half of those who finished the 6 years of compulsory education drop out off the formal education system. Currently, 75% of the workforce have just primary education. The gross enrollment ratio at the secondary level is only 30%. This is very low when com pared to the Asian NIC s, and also lower than many countries in the region, who are likely to be Thailand s main competitors in the future (Figure 8). 17. The Eastern Seaboard region is and area between Chonburi and Rayong, which are located between kilometers from Bangkok.

24 21 For the future, Thailand needs to upgrade the technological and skill base of its industries and services.18 This will require workers with more than just primary education. Recent evidence indicated that the m ore m odern m anufacturing industries, which are behind the current accelerated growth, dem and m ore and m ore workers with more than just primary education. Because of the low enrollm ent at the secondary level, it is likely that the m arket for workers with m ore than primary education will begin to get tight over the next few years. W hen this happens, the basic wages of the modern manufacturing sector will begin to rise rapidly, and Thailand s competitiveness will be eroded. This will happen in spite of the fact that Thailand will still have a large pool of low wage, and low income workers with just primary education. Such a development may affect both the sustainability of the current growth trend, and also lead to undesirable income distribution consequences, because the majority of workers with just primary education will continue to fall further and further behind those with better education. Policies are needed to increase secondary enrollm ent in a way that will not impose too much burden on those who are already poor, and also to develop effective training program s to upgrade the skills of those with just primary education who are no longer in the formal education system. 3. At the higher education level, the education system needs to be m ade m ore flexible to respo better to the skill requirem ents from the labour market. Fields of study which produce excess supply of workers need to be trimmed, while those with shortages need to be allocated more resources to expand. Private universities and colleges need to be given more flexibility, and more cooperation are needed between the public sector and the private sector to develop programs of study that will meet with requirem ents in the labour m arket. The future is one where the public supply of education (which will continue to be the dominant source of supply for sometime) need to cater to requirem ents for employment in the private sector, rather than mostly to employment in the public sector as in the past. 18. This will be true in agriculture also, where there are now diversifications into more higher value added products, such as fruits, vegetable, and aqua-culture. These products generally require more skill and knowledge to get the best results.

25 22 REFERENCES Bertrand, T.J. and L. Squire [1980]; "The Relevance of the Dual Economy Model: A Case Study of Thailand," Oxford Econom ic Papers. Chalamwong, Yongyuth and Gershon Feder [1988]; "The Impact of Landownership Security: Theory and Evidence from Thailand," The W orld Bank Economic Review, May. H utaserani, S. and S. Jitsuchon [1988]; "Thailand s Income Distribution and Poverty Profile and Their current Situation," paper presented at the 1988 TD RI Year-end Conference on Income Distribution and Long-term Developm ent, Decem ber. M eesook, Oey A stra [1979]; "Income, Consumption and Poverty in Thailand, 1962/63 to 1975/76," W orld Bank staff working paper No.364, November. Phongpaichit, P. and C.J. Baker [1984]; "Bertrand s Choice and Seasonal Unemployment Reconsidered," M im eo, Faculty of Economics, Chulalongkorn University. Sahasakul, C., N. Thongpakde and K. Kraisoraphong [1989]; "Lessons from the W orld Bank s Experience of Structural Adjustm ent Loans (SALs): A Case Study of Thailand," Thailand Development Research Institute, May Siamwalla, A m m ar and Suthad Setboonsarng [1987]; "Agricultural Pricing Policies in Thailand: ," Agriculture and Rural Developm ent Program, Thailand D evelopm ent Research Institute, October. Sussangkarn, Chalongphob [1987]; "The Thai Labour Market: A Study of Seasonality and Segmentation," Paper presented at the International Conference on Thai Studies, A ustralian National University, Canberra. Sussangkarn, Chalongphob, Pranee Tinakorn and Tienchai Chongpeerapien [1988]; "The Tax Structure in Thailand and Its Distributional Implications," Paper presented at the TD R I Year-end Conference, Cha-am, Decem ber. T D R I/N E S D B [1989]; "S&T M anpower Situation: An Update," Hum an Resources and Social Development Program, TD RI, and Hum an Resources Planning Division, NESDB, June.

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